Tesla’s grand vi­sion may take it to new heights

The Hamilton Spectator - - BUSI­NESS - VIVEK WAD­HWA

Elon Musk re­cently laid out a “mas­ter plan” for where his com­pany, Tesla Mo­tors, is head­ing.

The vi­sion is un­doubt­edly am­bi­tious: four new kinds of Tesla ve­hi­cles, so­lar ini­tia­tives, au­tonomous driv­ing tech­nolo­gies and a rideshar­ing pro­gram.

Judg­ing by the sub­se­quent three­per-cent dip in Tesla’s stock price (fol­lowed by a slight re­bound Fri­day), the mar­kets don’t ap­pre­ci­ate Musk’s vi­sion or the prom­ise of these tech­nolo­gies.

They don’t un­der­stand the ex­po­nen­tial ad­vances in fields such as ar­ti­fi­cial in­tel­li­gence, stor­age and so­lar en­ergy, or the scale ad­van­tages that come from build­ing tech­nol­ogy plat­forms.

Tesla may well stum­ble be­cause it is try­ing to do too much too fast, but Musk’s vi­sion is sound.

The most con­tro­ver­sial part of Musk’s vi­sion is his plan to in­te­grate So­larCity’s pho­to­voltaic tech­nolo­gies into Tesla’s Pow­er­wall stor­age tech­nol­ogy, the units that cus­tomers use to charge their elec­tric ve­hi­cles at home.

While there are valid cor­po­rate gov­er­nance con­cerns about merg­ing two com­pa­nies with the same board mem­bers, the tech­nol­ogy com­bi­na­tion is a strate­gic win­ner.

At the rate at which so­lar tech­nol­ogy is pro­gress­ing, its cost per watt by 2022 will be less than half of what it is to­day. Prices of so­lar pan­els have been fall­ing at more than 10 per cent a year for the past 40 years and their cost is now jus­ti­fied with­out gov­ern­ment sub­si­dies. Bloomberg New En­ergy Fi­nance (BNEF) es­ti­mates that the “learn­ing rate” of so­lar pan­els — the fall in their price for ev­ery dou­bling in their global in­stal­la­tion — is 26 per cent. And so­lar in­stal­la­tions are dou­bling ev­ery year or two. At this rate, by 2030, so­lar cap­ture could pro­vide 100 per cent of to­day’s en­ergy; and by 2035, it could be al­most free.

What has been hold­ing so­lar en­ergy pro­duc­tion back is the cost of en­ergy stor­age, which has ne­ces­si­tated a com­plex, messy sub­sti­tute for con­nec­tion to the grid. Tesla’s Pow­er­wall re­moves this depen­dency and al­lows one com­pany to pro­vide an “in­te­grated and beau­ti­ful so­lar-roof-with-bat­tery prod­uct that just works,” as Musk sug­gested. This is the kind of ad­van­tage and el­e­gance that came with the Ap­ple iPhone, which in­te­grated mu­sic, tele­phony and com­puter ap­pli­ca­tions into one de­vice.

The cost of bat­tery tech­nolo­gies is fall­ing at a rate sim­i­lar to that of so­lar pro­duc­tion. Ac­cord­ing to BNEF, the learn­ing rate in elec­tricve­hi­cle bat­ter­ies is 21.6 per cent, mean­ing we can ex­pect that by the end of 2022, these too will cost less than half of what they do to­day.

This would give Tesla the same mar­ket lead­er­ship on elec­tric ve­hi­cle bat­tery tech­nolo­gies that Ap­ple com­manded when it first rolled out the iPhone.

With lower costs for elec­tric­ity and bat­ter­ies, the de­mand for elec­tric ve­hi­cles will sky­rocket. The nearly half-mil­lion or­ders that Tesla re­ceived for its $35,000 Model 3 was a clear in­di­ca­tion of de­mand.

As Tesla starts build­ing ve­hi­cles at a pace to meet the or­ders, the price of the key com­po­nent of these cars — the bat­tery — will keep fall­ing, and the com­pany will be able to of­fer newer mod­els at even lower prices. Imag­ine cars as pow­er­ful as to­day’s Tesla Model S, trav­el­ling 400 kilo­me­tres on a charge, that re­tail for $25,000 US. This is very plau­si­ble in the early 2020s.

Now add to these ad­vance­ments to the cars’ self-driv­ing ca­pa­bil­i­ties, which con­tinue to im­prove as the ma­chine-learn­ing al­go­rithms used for nav­i­ga­tion be­come smarter, and you have a prod­uct that could save tens of thou­sands of lives.

It is surely pos­si­ble that Tesla could fail in these ef­forts by think­ing too big. But its grand vi­sion may well prove to be the strate­gic ad­van­tage that it needs.

Imag­ine cars as pow­er­ful as to­day’s Tesla Model S, trav­el­ling 400 kilo­me­tres on a charge, that re­tail for $25,000 US.

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